Is auto insurance paid in advance?
When you make your monthly, semi-annual, or annual auto insurance payments, your auto insurance is paid in advance. This means that your coverage is up-to-date until the next billing cycle. When you pay your auto insurance premiums, the cycle restarts and you are covered again until your next bill. If you pay you auto insurance in advance for the whole year instead of monthly payments, you could get an auto insurance discount.
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Brandon Frady
Licensed Insurance Agent
Brandon Frady has been a licensed insurance agent and insurance office manager since 2018. He has experience in ventures from retail to finance, working positions from cashier to management, but it wasn’t until Brandon started working in the insurance industry that he truly felt at home in his career. In his day-to-day interactions, he aims to live out his business philosophy in how he treats hi...
Licensed Insurance Agent
UPDATED: Dec 14, 2023
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Our insurance industry partnerships don’t influence our content. Our opinions are our own. To compare quotes from many different companies please enter your ZIP code on this page to use the free quote tool. The more quotes you compare, the more chances to save.
Editorial Guidelines: We are a free online resource for anyone interested in learning more about auto insurance. Our goal is to be an objective, third-party resource for everything auto insurance related. We update our site regularly, and all content is reviewed by auto insurance experts.
UPDATED: Dec 14, 2023
It’s all about you. We want to help you make the right coverage choices.
Advertiser Disclosure: We strive to help you make confident auto insurance decisions. Comparison shopping should be easy. We are not affiliated with any one auto insurance provider and cannot guarantee quotes from any single provider.
Our insurance industry partnerships don’t influence our content. Our opinions are our own. To compare quotes from many different companies please enter your ZIP code on this page to use the free quote tool. The more quotes you compare, the more chances to save.
On This Page
Is car insurance paid in advance? Or do you pay as you go? Today, we’re answering any questions you might have about paying car insurance in advance.
When you buy a car insurance policy, you are required to pay your bill upfront. The insurer must collect a premium – a payment – in order for your insurance policy to be considered binding and up-to-date.
Years ago, users needed to pay their entire insurance policy upfront: you could only pay for auto insurance for six months or one year in advance. You needed some foresight and careful budgeting to ensure you had enough cash on hand.
However, as more states began to require drivers to have auto insurance, insurers began to make insurance more convenient by offering monthly payments.
Today, most people pay their car insurance on a monthly basis. Your annual (12 months) or semi-annual (6 months) policy is split into monthly payments. Instead of paying $1,000 every year, for example, you pay $83.33 every month.
Every time you settle your monthly premium, your insurance policy will be up-to-date until your next bill is due. This means your insurance policy is legal and binding until your next bill is due. If you miss your next payment, or if you’re late, then your insurer may decide to cancel your policy.
Of course, just because most people make monthly car insurance payments doesn’t necessarily mean you should make monthly payments. You can pay your car insurance in advance to save money, for example.
Should You Pay Car Insurance in Advance? Or Should You Pay Monthly?
Typically, insurance companies will charge a small premium for monthly insurance payments.
If your insurance policy is $1000 a year, for example, then an insurer may charge slightly more than $83.33 per month when paying monthly. They might raise your insurance policy to $1050 per year, for example, or $87.50 per month.
This premium occurs because you’re effectively “borrowing” money from the insurance company. You’re “financing” your annual insurance policy into more convenient monthly payments. The insurance company also likes to receive the entire guaranteed amount upfront, and they’ll reward customers for doing so.
Of course, lump-sum payments aren’t ideal for everyone. Some people live paycheck to paycheck. Other people don’t have $1000 lying around at all times throughout the year. In this situation, monthly payments can be convenient and easy.
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Benefits of Monthly Payments
Monthly payments are the best option for some people. Monthly payments give you a small, manageable amount of money to pay each month. You can focus on paying that small monthly bill without stressing over a larger lump sum payment every 6 to 12 months. Other benefits of monthly payments include:
- Monthly payments mean you don’t have to save extra cash throughout the year for your auto insurance
- Monthly payments are ideal for those who live paycheck to paycheck, or for anyone who doesn’t have a large lump sum of cash available at all times throughout the year
- Monthly payments allow you to know the due date of your car insurance every month instead of waiting to hear from your insurer about your entire premium payment
- With monthly payments, you can set automated payments by linking your insurance to your bank account or payment cards, reducing the risk that you’ll ever make an error
Benefits of Annual or Semi-Annual Payments
Some people prefer making a single large payment every 6 to 12 months. You might prefer one single payment, for example, instead of worrying about 6 to 12 smaller monthly installments. Other benefits of annual or semi-annual payments include:
- With annual or semi-annual payments, you’re buying a full year’s worth of peace of mind; you won’t have to worry about missing a due date or incurring late payment fees during that year, nor will you have to worry about insurance getting canceled because of a missed bill
- Some people find it easier to track, manage, and pay a single annual bill as opposed to keeping track of monthly bills
- Some people prefer using a certain lump sum payment – like a Christmas bonus or tax refund – to pay their insurance policy every year
- Insurance companies will typically provide a discount to customers who make annual insurance payments as opposed to monthly installments
Read more: Can you pay for auto insurance upfront for the whole year?
Types of Insurance Payments
Insurance companies may offer different ways to pay your insurance bill. Some available payment methods include:
Full Pay: You pay for an entire 6 or 12-month policy in advance. You pay the entire fee, and then you’re covered for the entire 6 or 12-month period.
EFT: EFT, or electronic funds transfer, is when the insurance company takes a payment out of your checking account or debit card every month on the same day. As long as you have sufficient funds in your account, you’ll be able to pay your car insurance bill.
Quarterly Payments: Some insurance companies offer a mix of monthly and annual/semi-annual payments by letting you pay quarterly. Quarterly payments don’t typically come with a discount, but they may be more convenient for some insurance policyholders.
Monthly Billing: Some people prefer monthly billing, where they receive a bill every month on the same date. You’re in charge of paying that bill anyway you like.
Read more: Automatic Payments Auto Insurance Discount: Save on Auto Insurance
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Conclusion
Car insurance is typically paid in advance. In fact, you’re required to pay for your car insurance in advance. Your car insurance is not considered legal, binding, or valid until you pay your premium.
Just because you have to pay car insurance in advance doesn’t mean you need to pay your entire annual or semi-annual bill in advance. You can pay monthly installments, for example, paying for each upcoming month in advance. Alternatively, some people prefer paying one large lump sum bill every 6 months or 12 months.
Ultimately, policies vary between insurance companies. Talk to your insurance company to see if you can save money with annual or semi-annual insurance payments.
Frequently Asked Questions
Is car insurance paid in advance or do you pay as you go?
When you buy a car insurance policy, you are required to pay your bill upfront. The insurer must collect a premium – a payment – in order for your insurance policy to be considered binding and up-to-date. Payment can be made in advance for the whole policy term or through monthly, semi-annual, or annual payments.
Can I save money by paying my car insurance in advance?
Yes, paying your car insurance in advance for the whole policy term instead of making monthly payments can often result in savings. Insurance companies may offer discounts or lower rates for customers who choose to pay upfront.
What are the benefits of monthly car insurance payments?
Monthly payments can be convenient and manageable for some people. It allows for smaller, regular payments instead of a larger lump sum. It can also help with budgeting and cash flow management.
Are there different types of payment methods for car insurance?
Yes, insurance companies may offer different payment methods. Some options include full pay (paying the entire policy term upfront), electronic funds transfer (EFT), quarterly payments, or monthly billing. The availability of these options may vary depending on the insurance company.
Is it necessary to pay car insurance in advance?
Yes, paying car insurance in advance is necessary to ensure that your policy is active and valid. Insurance companies require upfront payment to provide coverage and to consider the policy binding. Failure to pay premiums may result in the cancellation of the policy.
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Brandon Frady
Licensed Insurance Agent
Brandon Frady has been a licensed insurance agent and insurance office manager since 2018. He has experience in ventures from retail to finance, working positions from cashier to management, but it wasn’t until Brandon started working in the insurance industry that he truly felt at home in his career. In his day-to-day interactions, he aims to live out his business philosophy in how he treats hi...
Licensed Insurance Agent
Editorial Guidelines: We are a free online resource for anyone interested in learning more about auto insurance. Our goal is to be an objective, third-party resource for everything auto insurance related. We update our site regularly, and all content is reviewed by auto insurance experts.